DBRS Confirms Bank of Nova Scotia Ratings at AA and R-1 (high), Trends Stable

DBRS has today confirmed the ratings of Bank of Nova Scotia (Scotiabank, BNS or the Bank) and its related entities, including Scotiabank’s Deposits & Senior Debt at AA and Short-Term Instruments at R-1 (high). All trends are Stable. DBRS has discontinued its separate Issuer Rating of Maple Trust Company because the securitization transactions that the rating supported have been repaid in full. DBRS has discontinued its rating of the Scotiabank Subordinated Notes Trust due to repayment. Also, DBRS has discontinued its rating of the Bank’s Cumulative Preferred Shares because there are none outstanding. Scotiabank’s ratings remain supported by its diversified earnings profile, expense control culture and prudent credit risk management.

Scotiabank remains Canada’s most geographically diverse bank, having a strong presence in Latin America and the Caribbean. After acquiring direct banking company, ING Bank of Canada (ING), in November 2012, Scotiabank completed its rebranding of the unit to Tangerine in May 2014. The Bank recently sold off a majority of its stake in CI Financial, one of Canada’s largest investment fund companies. Recently, the Bank has increased provisions in Latin America in line with portfolio growth and a shift in the portfolio mix.

Scotiabank’s exposure in emerging markets and corporate lending is higher compared to its Canadian bank peers; as a result, DBRS views BNS’s credit risk as the highest among the big five banks, but nevertheless, it remains strong overall.

Like its other Canadian bank peers, Scotiabank has exposure to the Canadian residential mortgage market and other real estate lending. A slowdown in these markets may slow earnings generation, while a downturn in the residential mortgage or commercial real estate markets could hurt asset quality indicators and ultimately have an impact on provisioning levels.

Scotiabank’s long-term deposits and senior debt rating, at AA, is composed of its intrinsic assessment of AA (low) and its support assessment of SA2 (reflecting the expectation of systemic and timely external support by the Government of Canada). The SA2 ranking results in a one-notch benefit to the Deposits & Senior Debt and Subordinated Debt ratings.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations (June 2014), Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (December, 2013) and Criteria: Support Assessment for Banks and Banking Organisations (January 2014), which can be found on the DBRS website under Methodologies.

Ratings for Scotia Mortgage Corporation, Montreal Trust Company of Canada and National Trust Company are based on ratings for Bank of Nova Scotia.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, or for more information on this bank or industry, please contact us at info@dbrs.com.